[BreachExchange] Employer Liability For Data Breaches: Avoid Getting Eaten By Your Own

[Audrey McNeil]

https://www.jdsupra.com/legalnews/employer-liability-
for-data-breaches-62608/

When a company suffers a data breach, it is hit with a barrage of issues.
For instance,

How can it safeguard against another breach?
Who should it notify of the breach and when (Authorities? The people whose
data was compromised?)?
What type of measures should it undertake to minimize possible damage to
those whose data was compromised?
How can it guard its reputation and brand?
How can it minimize possible lawsuits and governmental investigations?

These decisions are often made on the fly and under a sense of urgency.  As
we regularly state in the data security world, “the best defense is a good
offense.” To prepare, all organizations should have a plan of action,
including a leadership team of IT, legal and public relations
professionals, already in place for what to do in case of a breach.

A key issue companies face is possible legal liability. As though tackling
the breach itself wasn’t enough, companies regularly confront follow-on
lawsuits from those whose data may have been compromised as a result of the
breach. Lawsuits regularly are filed almost as soon as a breach is
announced. The premise of these legal claims is that the company was at
fault for failing to sufficiently safeguard against the breach.

Adding insult to injury is when the lawsuits come from within as employees
join the feeding frenzy. Employees may break rank and sue the company if
their personal data was the subject of the breach.[1] This happens more
often than you may think. Companies collect and maintain significant
personal data on their employees, including tax documents, employment
eligibility forms, bank account information, and benefits materials. This
makes employee data rich fodder for ne’er-do-well hackers and scammers, and
can result in lawsuits even when the breach involved mere employee
negligence rather than malfeasance. Access to employee data can and has
been misused as well by disgruntled employees who want to “stick it” to
their employer.

What Does a Lawsuit Filed by an Employee Look Like?

Employees who sue their employers in the wake of a data breach commonly
make claims alleging:

Negligence, e. that the company was supposed to, but did not, take the
necessary precautions to protect employee data from a data breach; and that
its failure to do so exposed the employee to harm from the breach; and
Breach of Contract, e. that the company was obligated by contract (either
an express or implied contract) to protect the employee’s data and breached
its contract by failing to do so.

Courts from different jurisdictions have treated these claims
inconsistently, but there are helpful takeaways for companies to apply. A
federal court in New York recently allowed an employee’s lawsuit to go
forward under these theories of liability, i.e. negligence and breach of
contract (the defendant company had requested the court dismiss the case in
its early stages, arguing that the employee failed to make a legal claim
for relief).  In contrast, a federal court in Pennsylvania sided with the
employer.

The Legal Upshot.

Why have cases come out differently? An obvious reason for any disparity
would be application of different state’s laws to determine what makes a
negligence or breach of contract claim. There are some important takeaways
for companies to consider: The New York case, Sackin v. TransPerfect
Global, involved a phishing scam while the Pennsylvania case, Enslin v. The
Coca-Cola Company, involved a rogue employee stealing company laptops. A
phishing scam conceivably can be foreseen and prevented through employee
training. Employee theft is harder to anticipate and prevent. And so a
court may be more inclined to impose liability on a company where the
breach might have been prevented by reasonable measures. Another important
distinction is that the employer in the Pennsylvania case, Coca-Cola, had a
code of conduct that expressly outlined the company’s responsibilities with
employee data. The employee could not turn around easily to claim
contractual obligations beyond those clearly defined by the company.

How Can You Shore Up Your Company and Protect Against Such Lawsuits?

These court cases provide some important guidance to companies. You should
anticipate a legal battle if you do not take reasonable measures to protect
your employees’ data. This means you should:

- Incorporate industry standard IT measures to protect against data hacks;
and
- Train employees on responsible handling of personal data, including being
on the lookout for phishing or other hacker scams. Some companies require
data security training via an online module with a test that must be
completed at the conclusion of the training.

(Hint: Tax season is coming up; and that’s a ripe time for scam attempts.
Consider circulating a memorandum to personnel with access to employee data
that identifies some popular scams and pitfalls to avoid.)

Other things you should do to minimize your liability:

- Revise employment contracts and company policies to clearly define and
limit your data collection and duties (e. what data you intend to collect,
what you will do to protect that data, and limits on how the data may be
used); and
- Update your data retention policies to ensure you—and any follow-on
processors such as payroll providers—hold data only for so long as
necessary and destroy that data promptly once no longer needed.

Such foresight and measures can shield not only against a data breach in
the first place, but may also help protect against legal exposure in the
event of a breach. Frontloading your efforts is much better than conducting
damage control after the fact. In the words of Sun Tzu: “The greatest
victory is that which requires no battle.”

[1] Customers also may file suit if their data was compromised, but those
claims are distinct from employee claims. We discussed the legal landscape
for consumer actions in a previous article and address employee legal
actions here.
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